COVID-19 Update for Business Owners and Taxpayers

[Last updated on April 16, 2020 at 2:30 PM PDT]

We’ve been following the news closely regarding the COVID-19 pandemic and how it is affecting Canadians.

It’s tough to wade through all of the information out there as it changes drastically day-by-day. For that reason, we’ve created a summary of information that is useful for business owners and taxpayers to know.

One thing to note is that this information should not be considered advice for any specific situation as it is general in nature.

Government Economic Response Plan

The federal government announced it’s response to the COVID-19 outbreak on March 18, 2020.

Some highlights for business owners include:

• Helping Businesses Keep their Workers
• Flexibility for Businesses Filing Taxes
• Ensuring Businesses Have Access to Credit

General Information for Business Owners and Taxpayers

Expenses

Reducing your expenses where possible will help save cash in the short term. Wait until the due date before paying an invoice that you owe to help with cash flow. Remember that these are businesses too, so please only pause what is necessary.

Business As Usual

As much as is possible, continue invoicing clients and try to collect payment. However, as everyone is going through the same issues, it might be helpful to your clients to offer payment terms and collect when things get back to normal. We’re all in this together!

Short Term Financing

This can help bridge the gap during a cash crunch. Obtaining short-term financing can help you keep your employees at work, and business operating as usual.

The government is making additional short-term funding available to small businesses through BDC.

More information can be found here.

Sign up for CRA My Account and My Service Canada Account

If you don't have access to your My Account or My Service Canada Account please register for these now.

Having access to these accounts will greatly increase your ability to apply for these benefits.

Financial Institution Support

Canada's six largest banks have announced they will be working to provide financial relief to Canadians impacted by COVID.

This is said to include mortgage payment deferrals for up to six months to help customers struggling with the financial impacts of the novel coronavirus pandemic.

After reviewing the mortgage deferral details on the CIBC and RBC websites, it appears that Interest will still accrue on mortgages during the deferral period.

This information is not fully fleshed out yet, but this CBC article and this Global News article explain a bit more.

Student Loans

Effective March 30, 2020, the Government of Canada will provide a six-month interest-free moratorium on the repayment of Canada Student Loans until September 30, 2020 for all individuals currently in the process of repaying these loans..

Wage Subsidies

Two separate wage subsidies have been announced:

• The Canada Emergency Wage Subsidy (75% subsidy)
• The Temporary Wage Subsidy for Employers (10% subsidy)

Here are the details that we know about each so far.

The Canada Emergency Wage Subsidy (75% Subsidy)

What it Means for Businesses

The Canada Emergency Wage Subsidy would provide a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.

Who is Eligible?

Eligible employers include:

• Individuals
• Taxable corporations
• Partnerships
• Non-profit organizations
• Registered charities

Eligible employers must show a drop of at least 15% of their revenue in March 2020 and 30% for the following months (see Eligible Periods below). In applying for the subsidy, employers will be required to attest to the decline in revenue.

Generally speaking, this would need to be calculated by comparing monthly revenue to the same month in the prior year.

There are currently three subsidy claiming periods set out with guidelines on which revenue periods to compare.

To measure revenue loss, it is proposed that all employers have the flexibility to compare revenue of March, April and May 2020 to that of the same month of 2019, or to an average of their revenue earned in January and February 2020.

For businesses that were established after February 2019, the guidelines just state that monthly revenues should be compared to a “reasonable benchmark.” It’s unclear exactly what that means, but we’ll provide more guidance as it is available.

Eligible Employees

An eligible employee is an individual who is employed in Canada.

The main restriction for when employees are not eligible relates to the Canadian Emergency Response Benefit. The restriction states:

• Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period.

The subsidy can’t be claimed for employees that were unpaid for 14 consecutive days during a claiming period. Presumably this is because the employee would then be eligible to receive the Canadian Emergency Response Benefit (CERB).

How to Apply

Eligible employers will be able to apply through the Canada Revenue Agency’s My Business Account portal as well as a web-based application.

To make sure you can apply and receive the subsidy:

• We recommend signing up for CRA’s My Business Account if you have not already.
• Set up direct deposit with CRA

Amount of Subsidy

The subsidy will equal 75% of wages for the first $58,700 paid, up to a maximum of $847 per week per employee.

If an employer also qualifies for the 10% subsidy, the 75% subsidy will be reduced by the 10% subsidy (basically, they would just get the 75% subsidy and not both added together).

There is no overall limit on the subsidy amount that an eligible employer may claim.

As well, the Government is proposing that employers eligible for the CEWS be entitled to receive a 100% refund for employer-paid contributions to EI, CPP, QPP and QPIP.

It’s important to note that this 75% subsidy will be received as a payment to employers and it’s unknown how long it will be until payments are received. This is unlike the 10% wage subsidy noted below where the 10% savings are effective almost immediately.

More details can be found on the Government of Canada website linked here.

Temporary Wage Subsidy for Employers (10% Subsidy)

What it Means for Businesses

The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency.

Eligible employers will receive 10% of the remuneration paid to employees from March 18, 2020 to June 19, 2020, up to $1,375 for each eligible employee and to a maximum of $25,000 total per employer.

Who is Eligible

Eligible employers include:

• Individuals
• Partnerships
• Non-profit organizations
• Registered charities
• Canadian Controlled Private Corporations who are eligible for the small business deduction (this includes a large portion of incorporated small businesses in Canada)

How to Calculate the Subsidy

The subsidy will need to be manually calculated. Eligible employers can then reduce their payroll remittances by the calculated amount.

For example:

• An employer has one employee who earned $5,000 in April.
• The wage subsidy would be $500 for that period ($5,000 * 10%)
• The employer can then reduce the April payroll remittance by the $500.

Employers will also need to keep track of the per employee maximum of $1,375 and the total maximum of $25,000 to ensure they don’t receive more than the max.

How to Receive the Subsidy

There’s no need to apply for the subsidy. The subsidy is received by reducing your payroll remittances by the calculated amount.

Once you have calculated your subsidy, you can reduce your current payroll remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy.

When to Start Reducing Payroll Remittances

You can start reducing payroll remittances for the first remittance period that includes remuneration paid from March 18, 2020 to June 19, 2020.

For example, if you are a regular remitter, you can reduce your payroll remittance that is due to the CRA on April 15, 2020.

More details can be found on the Government of Canada website linked here.

Canada Emergency Business Account (Interest-free Loans)

The Government of Canada is working with Canada’s largest banks to administer the Canada Emergency Business Account (CEBA).

This consists of interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced, due to the economic impacts of the COVID-19 virus.

What is the Canada Emergency Business Account?

The Canada Emergency Business Account (CEBA) is a$40,000 government-guaranteed loan to help eligible businesses pay for operating expenses.

Until December 31, 2020, the loan will be funded as a revolving line of credit for $40,000.

After December 31, 2020, any outstanding balance will be converted into a non-revolving 5-year term loan maturing on December 31, 2025. At which time, the balance must be paid in full.

Who is Eligible?

To qualify, organizations must show that they paid between $20,000 and $1.5 million in total payroll in 2019.

Borrowed funds must be used to pay for operating costs that cannot be deferred such as payroll, rent, utilities, debt payments, property taxes, etc.

Interest-Free Period

No interest applies to the loan until January 1, 2023.

Beginning January 1, 2023, interest accrues on the balance at a rate of 5% per annum, payable monthly on the last day of each month.

Debt Forgiveness

If 75% of the balance of the term loan is paid on or before December 31, 2022, the remaining balance of the term loan will be forgiven.

For example, if your balance is $40,000 on January 1, 2021 and you repay $30,000 on or before December 31, 2022, the remaining $10,000 will be forgiven.

If you do not repay 75% of the balance of the term loan on or before December 31, 2022, the full loan balance and all accrued and unpaid interest will be due and payable on December 31, 2025.

When is It Available?

It is not yet clear when funds will be available, but it appears online applications are being accepted as of April 6, 2020.

More Information

More info on the Canada Emergency Business Account can be found on the Government of Canada website linked here or through one of Canada’s 6 largest banks such as CIBC or RBC.

Lay Offs

We don’t recommend jumping to layoffs if it can be avoided. However, if you are required to let employees go, there are some important things to keep in mind.

• Employment Standards - You will still need to follow employment standards for your given location.
• Termination of Employment - Generally, layoffs can be considered a termination of employment and employers must give written notice and/or pay compensation to employees.
• Final Wages - Employees must be paid their final wages once the job ends. In BC, this must be paid within 48 hours of the last day of employment. Other provinces may have different time frames, see employment standards for more details.
• Consult a Lawyer - We recommend that you consult with a lawyer if you are unclear about your obligations when terminating employees. Charlene Clearly of Westshore Law has prepared a document explaining some of the details around layoffs and COVID-19.

Layoffs vs Terminations

If you are considering temporary layoffs, please see this article from Westshore Law for information on the risks involved and speak with your lawyer before proceeding.

Before laying off any employees, there are a few things that are critical to know.

A temporary layoff means that the employee will be returning to work within a certain period of time - the time limit is 13 weeks in BC (BC Employment Standards). In a temporary layoff, you will not need to pay out vacation pay or severance, as the employee will be returning to work.

A termination indicates that you are ending your employment relationship with the employee. Notice needs to be given or the equivalent severance pay needs to be paid out on termination based on the employee’s term of service.

Note that if a temporary layoff lasts longer than the time limit (13 weeks in BC), it will be treated as a functional termination, and vacation and severance pay owing will need to be paid at that time.

In order to do temporary lay-offs you will need to either:

• Have a clause in your employment agreement that allows for temporary layoffs

OR

• Have employee consent to be laid off temporarily.

For Employees and Self-Employed Individuals

There are some support programs for employees who are laid off or who cannot work during this period.

Temporary Income Support (EI)

Employment Insurance programs will be accessible through your CRA My Account or My Service Canada Account.

This document has been making the rounds online, and seems to be a useful guide for applying for EI benefits if you are unable to work due to office closure, or if you are sick or quarantined.

EI Sickness Benefit

If you are sick or quarantined, Employment Insurance (EI) sickness benefits can provide up to 15 weeks of income replacement and is available to eligible claimants. If you are eligible, visit the EI sickness benefits page to apply.

If you are quarantined, you will not have to provide a medical certificate. Also, if you can’t apply for EI due to your quarantine you may apply at a later date or you may be eligible for the CERB (see below).

If you need to have the one week waiting period waived, you will need to call the EI Sickness Benefit phone number.

Information from Coronavirus – Employment and Social Development Canada

The Canadian Emergency Response Benefit (CERB)

To support workers and help businesses keep their employees, the government has enacted legislation to establish the Canada Emergency Response Benefit (CERB).

This taxable benefit will provide up to $2,000 a month for up to four months for workers who lose their income as a result of the COVID-19 pandemic.

Eligible Workers:

• Reside in Canada,
• are at least 15 years old,
• stopped work due to COVID-19 and expect to be without work for at least 14 days, and
• received at least $5,000 of income in 2019 or 12 months prior to date of their application. This income must be from one or a combination of employment, self-employment or maternity/parental benefits from EI.

Workers who are still employed, but are not receiving income because of disruptions to their work situation due to COVID-19, would also qualify for the CERB (subject to the criteria noted above).

Applying for CERB

The online application linked here became available April 6, 2020. Applicants are asked to apply on specific days of the week that relate to their birth month.

Unknown block type "blockImage", please specify a serializer for it in the `serializers.types` prop

If you have already applied for EI due to COVID related hardship, there is no need to also apply for CERB. Claims will automatically be moved over to CERB and applicants will receive the 16 week CERB benefit first. If needed, pre-existing EI benefits can be used after CERB has been exhausted.

Individuals who were already receiving EI benefits will continue to do so. If EI benefits run out, individuals can then apply for the CERB.

Individuals who have been laid off but haven’t applied for EI yet, should apply for CERB first.

More information can be found on the Government of Canada website linked here.

Other Programs

Low-Income Support - A proposed one-time special payment of close to $400 in early May 2020 through the GSTC - for those who already receive GST credits quarterly.

Parents and Children - A new Emergency Care Benefit of up to $900 bi-weekly for those who are supervising children due to school closures and unable to work. Also an increase in maximum annual CCB payments for the year by $ 300 per child, starting in May.

BC Emergency Benefit for Workers - The Province of BC announced on March 23, 2020 the B.C. Emergency Benefit for Workers, which will give a $1,000 payment to British Columbians whose ability to work has been impacted by the pandemic. More info here.

Tax Deadline Changes.

Individuals - Extension of Personal Tax Deadline:

For individuals the April 30th return filing due date will be deferred until June 1, 2020.

If you expect to receive benefits under the GSTC or the Canada Child Benefit, it’s recommended not to delay the filing of your return.

Individuals - Deferral of New Taxes Owing

For any tax amounts that become due between March 18, 2020 and August 31, 2020, the CRA will allow taxpayers to defer payment until after August 31, 2020.

This deferral is also applicable for tax installment payments that become due between March 18, 2020 and August 31, 2020.

No interest and penalties will accumulate on these amounts during this period.

Businesses - Deferral of New Taxes Owing

For any tax amounts that become due between March 18, 2020 and August 31, 2020, the CRA will allow taxpayers to defer payment until after August 31, 2020.

This deferral is also applicable for tax installment payments that become due between March 18, 2020 and August 31, 2020.

No interest and penalties will accumulate on these amounts during this period.

No Change for Taxes Already Owed

Any tax that a taxpayer owed before March 18, 2020 is still overdue.

GST/HST Filing and Payment Deadlines

March 27, 2020 Update - Prime Minister Trudeau announced that they would be extending GST/HST filing and payment deadlines to June.

March 30, 2020 Update - More details on GST/HST deferral have been provided on the Government of Canada website.

To support Canadian businesses in the current extraordinary circumstances, the Minister of National Revenue will waiving interest and penalties on late GST/HST payments. Details include:

• Monthly filers who are remitting amounts collected for the February, March and April 2020 reporting periods. These would have been due March 31st, April 30th, and May 31st respectively. They’re now due June 30th.
• Quarterly filers who are remitting amounts collected for the January 1, 2020 through March 31, 2020 reporting period. These payments would normally be due April 30th. They are now due June 30th.
• Annual filers whose GST/HST return or installment amounts are due in March, April or May 2020. These amounts are now due June 30th.

BC Provincial Tax Deferrals

As of March 23, 2020, BC is extending filing and payment deadlines for the following taxes until September 30, 2020:

• Employer health tax
• Provincial sales tax (including municipal and regional district tax)
• Carbon tax
• Motor fuel tax
• Tobacco tax

See the BC Government web page for more details.